HomeMy WebLinkAboutAgenda - 02-16-1999 - 5cORANGE COUNTY
BOARD OF COMMISSIONERS
ACTION AGENDA ITEM ABSTRACT
Meeting Date: February 16, 1999
SUBJECT: Cable TV Rate Adjustment -Time Warner
DEPARTMENT: Manager's Office
ATTACHMENT(S):
Resolution/Order
Action Agenda
Item No. 5-C
PUBLIC HEARING: (Y/l)
BUDGET AMENDMENT: (Y/N)
INFORMATION CONTACT:
Albert T. Kittrell, Assistant County Manager
TELEPHONE NUMBERS: - - ext. 2300
Hillsborough 732 -8181
Chapel Hill 968 -4501
Durham 688 -7331
Mebane 227 -2031
PURPOSE: To adopt a resolution/order adjusting basic Cable TV rates for Time Warner Cable.
BACKGROUND: In September 1999 Time Warner Cable submitted FCC form 1240 requesting
adjustments of basic cable rates. Under FCC regulations cable companies are permitted to request
rate adjustments based on inflation.
Triangle J Council of Governments Cable TV Consultant, Bob Sepe, has reviewed Time Warner
documents on behalf of the County and determined the rate should be adjusted as requested by
Time Warner. The Board must either approve or deny Time Warner's rate request, finding the rate
to be either reasonable, or not reasonable. This determination must be based upon a finding of fact.
The consultant's report is attached, and the County Cable TV Citizen Advisory Committee concurs
with TJCOG review.
Michael Patrick, Chair of the County Cable TV Committee will present the resolution and
information to the Board. The rate adjustments for basic cable service are as follows:
Number of Customers Current Rate New Rates
Chapel Hill System
(most of the customers in the
5572
$8.18
$7.98
unincorporated area of the County)
Carrboro Systems
(Customers just outside of the town
1047
$9.01
$8.47
limits of Carrboro and Hillsborough)
Durham System
(Customer in Orange County
32
$10.65
$10.44
receiving cable services from Time
Warner of Durham)
Total Customers in
6651
unincorporated Orange County
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RECOMMENDATION (S): The Manager recommends the Board adopt a Resolution/Order
setting Time Warner's 1999 Basic Service Tier Maximum Permitted Rates at $7.98, $8.47 and
$10.44 for the Chapel Hill, Carrboro and Durham Cable TV Systems in the unincorporated areas of
the Orange County.
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Time Warner Cable
Orange County, NC -0256 & NC -0276
FCC 1240 Rate Analysis
January 4, 1999
REPORT
TO: Albert Kittrell, ACM, Orange County
FROM: Robert Sepe, TI-COG Cable Consultant
City of Raleigh
RE: Review of Annual Updating Maximum Permitted Rates FCC 1240 for 1999
The consultant has reviewed Time Warner Cable's FCC 1240 filing and supporting
documentation furnished by the cable operator, and have conducted fact - finding discussions with
the cable operator and Federal Communications Commission representatives and documents.
The values stated in the filing are the responsibility of the cable operator's management.
Supplied data were reviewed to determine whether the operator calculated "updated" rates
consistent with the procedures prescribed by the FCC in accordance with the 13th Order on
Reconsideration, the Time Warner Social Contract, and the Telecommunications Act of 1996.
Original computations were performed and compared with information provided by Time
Warner Cable. The consultant believes that the data submitted by the cable operator is free of
material misstatements, and the accompanying report provides a reasonable basis for the
following recommendation.
C:\DOCS\TJ-COG\ORANGE\1240-99\OR40-99.RPT
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Summary
On October 2, 1998, Time Warner Cable notified the County that it untended to set the rate for
basic service at $8.47 a month for the 1047 Basic Tier Service customers on the.Carrboro
System, $10.44 a month for the 32 Basic Tier Service customers on the Durham System and
$7.98 a month for the 5572 Basic Service customers on the Chapel Hill System. The total
number of cable customers served by Time Warner Cable in the unincorporated county number
is 6651.
Equipment & Installation Rates
In addition to the 1999 cable service rate increases, Time Warner will adjust rates for leased
customer equipment and installation services. Pursuant to the Social Contract, Time Warner is
allowed to aggregate equipment and installation costs on a regional basis'. Time Warner submits
a North Carolina regional FCC 1205 rate filing directly to the FCC for approval of equipment
and installation service rates applicable to multiple franchises across North Carolina. Until the
expiration of the Social contract, the franchise authority does not have the ability to review the
FCC 1205 filing.
Background
In September 1995, the FCC adopted the 13th Report and Order, which, among other things,
allowed cable operators to adjust their rates on an annual basis using the FCC 1240, taking into
consideration past and anticipated future external costs.
In November 1995, the FCC adopted the Time Warner Social Contract, which resolved hundreds
of cable complaints against Time Warner Cable. Provisions of the Social Contract permit Time
Warner to aggregate its leased subscriber equipment costs on a regional basis (using regional
FCC 1205 filings) and assess uniform equipment rates based on these data. Also, Time Warner
is allowed to include in its annual programming service rate filing (FCC 1240) past and future
(estimated) costs, along with future costs attributable to cable system upgrades.
The 13th Order requires Time Warner and other cable operators to submit their FCC 1240 filings
ninety (90) days before the date of rate implementation. During this period, the franchise
authority may review the reasonableness of the basic service tier rates and issue an order to either
approve or deny the rates. After ninety (90) days, the franchise authority retains refund authority
as long as it responds within 15 days to any inquiries from the cable operator regarding its review
of the company's FCC 1240 documents.
Time Warner's FCC 1240 rate adjustments reflect the following external cost elements:
1) External costs for True -up Period
'North Carolina is treated as a single region, TWC files a single FCC 1205 to establish uniform state wide
rates for equipment and installation. The FCC has sole authority for the review of FCC 1205 rates.
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2) External costs for Projected Period
3) Projected cable system upgrade costs (applied to upper cable tier only) - per Social Contract
4) Inflation from True -up Period
5) Inflation for Projected Period
6} Franchise related costs (PEG) from True -up Period
7) Franchise related costs (PEG) for Projected Period
Analysis of Rate Increases
External Costs
The rate adjustments reflect multiple external cost elements. An external cost is an expense a
cable operator incurs during the normal course of business and may be included in rate
calculations. External cost categories include: state and local taxes; franchise fees; costs of
complying with franchise requirements, including costs of providing public, educational, and
governmental access channels; retransmission consent fees and copyright fees incurred for the
carriage of broadcast signals; other programming costs; FCC regulatory fees; and costs
associated with channel additions.
True Up and Projected Periods
The FCC 1240 Form must be filed with the local franchise authority ninety (90) days before the
rates are scheduled to take effect, and may be filed no more frequently than annually. The FCC
1240 represents a departure from the quarterly method of updating cable rates, in that it allows
cable operators to estimate their future costs over a 12 -month period: this is referred to as the
projected period.' The FCC 1240 also allows operators to recover expenses that occurred during
a specified prior period of time, referred to as the true up period. If a cable operator incorrectly
estimates its costs for a projected period, it must correct those estimates by using the true up
segment of the next FCC 1240 rate filing.
Time Warner's projected period covers the 12 months of 1999, from January 1 to December 31.
The operator's true up period covers the 12 months of 1998, from January 1 to December 31.
CPST Rate Regulation Expiration
A provision within the Telecommunications Act of 1996 sets March 31, 1999 as the date upon
which rate regulation on upper cable service tiers expire. Thereafter, the cable operator is
allowed to change upper service tier rates at will and then, upon the provision of a 30 -day notice
to the franchise authority and subscribers.
'FCC 1210 Forms allow for the recovery of past costs, only, not future costs. Future costs are recoverable
through the use of the FCC 1240 Form, only.
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Franchise Related Costs
Public Access Television
Time Warner Cable reported no franchise related expenses during the past year.
Programming Costs
Time Warner will recover approximately $.26 monthly, per subscriber, during 1999 for
anticipated BST programming costs during the projected period. Time Warner representatives
state that program service providers customarily increase service fees annually. Time Warner
attributes its programming cost increase for increased program fees.
Inflation
Time Warner is claiming inflation adjustments in it's true up and projected period segments of its
FCC 1240 rate. filing. Time Warner used the FCC true up period inflation figure of 1.43 % for
the period October - December, 1997;1.14% for January- March, 1998. However, on October 1,
1998 the FCC announced that the true -up inflation rate for April - June, 1998 was 0.82 %.
Pursuant to the FCC's rate rules, the company must use the "current" inflation figure when
calculating its true -up and projected rate increase due to inflation. ,
Staff recalculated Time Warner Cable's charges attributed to inflation using currently available
information3. This resulted in a reduction of the overall inflation for 1998 from 1.0121 % to
1.0105% and set the projected period (1999) inflation index to 0.82 %. The projected period
inflation figure is subject to correction in the operator's subsequent FCC 1240 rate filing.
Time Warner's FCC 1240 rate filing did not reflect the true up inflation factor for the second
quarter of 1998 released by the Commission on October 1, 1998. Had the operator used the
0.82% value to calculate the true -up period inflation rate instead to the previous quarter's value
(1.14 %), the Maximum Permitted BST rates would have been $0.11 lower for Carrboro system
customers, $0.35 lower for Durham system customers, and $0.30 lower for Chapel Hill system
customers.
Time Warner did not have this data available to it at the time it completed its FCC Form 1240 for
1999. Therefore, staff spoke with Jim Coghlan (TWC's VP- Finance) and he agreed to file an
amended FCC 1240 for 1998 at the time the FCC 1240 for 2000 is submitted and adjust
customer statements accordingly.
3See FCC Form 1240 Instructions for Line C3.
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During this past year, the Federal Communications Commission issued two sets or rate orders,
one rolling back the CPST rate Time Warner Cable charged county subscribers and the other
remanding back to the County a BST rate order which found that TWC over charged its
customers because of the timing of the inflation adjustment. Time Warner submitted a refund
plan and an Amended FCC 1240 rate filing, which corrected true -up data submitted previously in
the 1998 rate filing.
When recalculating the maximum permitted rates for BST service, the consultant used the
current inflation values. In the interest of consumer protection, currently available information
was applied to the rate recalculation to eliminate overcharges which otherwise would be carried
forward into 2000. The BST rate recalculation did result in slightly lower monthly rates for the
Maximum Permitted Rate for Basic Service.
Cable System Upgrade Costs
Pursuant to the Social Contract, Time Warner is allowed to assess each CPST subscriber during
1999, $4.00 monthly to recover estimated expenses associated with a cable system upgrade. This
assessment is levied only on the CPST (Standard) tier and increases $1.00 during each of the five
(5) years of the Social Contract. This is the fourth year of the Social Contract.
Recommendation
The consultant staff recommends that the maximum permitted BST rate adjustment contained
within the three (3) FCC 1240 filing submitted by Time Warner Cable be found reasonable, and
be approved conditioned upon the understanding that any over /underage in the BST rate due to
the fourth quarter 1998 inflation factor be adjusted commensurate with the FCC 1240 filing for
2000. This treatment of any BST rate adjustment attributable to changing fourth quarter inflation
statistics is consistent with the FCC's ruling in such matters.
Proceeding
The franchise authority must either approve or deny the operator's BST FCC 1240 rate request,
finding the rate to be either reasonable, or not reasonable. This determination must be based
upon a finding of fact. The franchise authority should adopt the staff report as its own and the
public must be granted an opportunity to offer comment on the matter; it is suggested that the
public comment period coincide with a regular public meeting.
A rate order, conveying conditional approval is attached. To be valid, the order must be executed
following the conclusion of:
a. a public meeting where the commission grants interested parties an opportunity
to comment; and
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b. adoption by the commission of the report as its own - required by FCC rules
(requires a motion to adopt and a vote).
It is appropriate for public comment to be heard, as related to BST rate issues, at the time the
Commission meets to deliberate upon this matter. A statutory public hearing is not required. It
is customary to call for a public comment in these matters; the comment period may be
publicized by issuing a press release to the print and electronic media, and otherwise announce
the call for public comment in other ways. The company must be notified of the public meeting
and advised to have a representative present to offer comment.
STATE OF NORTH CAROLINA
ORANGE COUNTY
BEFORE THE BOARD OF COUNTY COMNUSSIONERS
IN THE MATTER OF:
Review of FCC 1240 Annual Basic
Service Tier Rate Adjustment Request
filed by Time Warner Cable for
NC -0256 & NC -0276
BY THE BOARD OF COUNTY COMMISSIONERS:
9
Order Finding TWC's 1999
Proposed Selected Basic
Service Tier Rates as
Reasonable and Providing
Conditional Approval.
WHEREAS, Time Warner Cable submitted three FCC 1240 Updating Annual Maximum
Permitted Rates filings for Regulated Cable Services with the County. Time Warner's filing covers
external costs, inflation, and cable system upgrade costs for the true up period of October 1, 1997
through September 30, 1998, and the projected period of January 1, 1999 through December 31, 1999;
WHEREAS, Time Warner Cable is permitted, pursuant to the Social Contract and Thirteenth
Order on Reconsideration, to estimate and recover anticipated inflation, external costs, and cable
system upgrade costs for the period of January 1, 1999 through December 31, 1999;
WHEREAS, on January 3, 1999, the County received a report from its consultant stating that
Time Warner's FCC 1240 BST rate calculations are in compliance with Federal Communications
Commission rate making rules, and that the requested maximum permitted Basic Service Tier Selected
rate was calculated in compliance with the FCC's rate making rules;
WHEREAS, FCC rules grant local franchise authorities an initial ninety (90) day review
period, measured from the date of receipt of said filing by the franchise authority, with which to review
the cable operator's FCC 1240 rate filing. If said ninety (90) -day review period expires before the rates
go into effect, the franchise authority retains review and refund authority past the initial ninety (90) day
review period as long as all inquiries from the cable operator regarding said review are responded to in
writing within fifteen (15) days of said inquiry;
WHEREAS, Time Warner's rate filing includes cost estimates for the calendar year of 1999,
and said estimates shall require adjustment (true up), due to changes in the fourth quarter 1998
inflation factor which effected the 1999 BST MPR, in the cable operator's subsequent FCC 1240 rate
filing for 2000; and
WHEREAS, the County is certified with the FCC to regulate basic service tier rates provided
by Time Warner Cable in franchise NC -0256 and NC 0276.
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IT IS A FINDING:
THAT Time Warner Cable did structure its 1998 true -up charges for the fourth 1997 through
third quarter 1998 on the FCC's published inflation factors (da980663, da981292).
THAT Time Warner Cable did base its BST .(Basic Tier Service) projected 1999 rate, in part,
upon an erroneous fourth quarter 1998 inflation factor FCC Cable Bureau (da981974);
THAT Time Warner Cable has by in large substantiated the other adjustments to its Basic
Service Tier rate based on past and estimated cost elements; and
THAT Time Warner has complied with FCC rate making rules, and its requested Maximum
Permitted BST rate is found to be reasonable and subject to any refund liability due to the fourth
quarter 1998 inflation factor at the time the FCC 1240 BST filing for 2000 is submitted.
IT IS THEREFORE ORDERED:
THAT Time Warner Cable's Basic Service Tier rate assessed subscribers within the County
shall not exceed the maximum permitted rate, subject to modifications in subsequent findings by the
cable operator or franchise authority for Basic Service Tier cable television programming during the
1999 calendar year;
THAT Time Warner may charge a Basic Service Tier rate below the approved Maximum
Permitted Rate, but not above it;
THAT the County retains its authority to issue refunds or rate roll backs after the initial ninety
(90) day review period with respect to the restructured rate set out in the FCC 1240 filing; and,
THAT Time Warner must keep a full and accurate account of all revenues and costs associated
with the aforementioned cable rate adjustment. -
ISSUED BY ORDER OF THE BOARD OF COUNTY COMMISSIONERS
This the day of January, 1999.
ATTEST:
Send Report and Order via Certified U.S. Mail to: Time Warner Cable
Copy to: R.F. Sepe @ the City of Raleigh
STATE OF NORTH CAROLINA
ORANGE COUNTY
BEFORE THE BOARD OF COUNTY COMMISSIONERS
IN THE MATTER OF:
Review of FCC 1240 Annual Basic
Service Tier Rate Adjustment Request
filed by Time Warner Cable for
NC -0256 & NC -0276
BY THE BOARD OF COUNTY COMMISSIONERS:
px f a /c/,, - 99
Order Finding TWC's 1999
Proposed Selected Basic
Service Tier Rates as
Reasonable and Providing
Conditional Approval.
WHEREAS, Time Warner Cable submitted three FCC 1240 Updating Annual Maximum
Permitted Rates filings for Regulated Cable Services with the County. Time Warner's filing covers
external costs, inflation, and cable system upgrade costs for the true up period of October 1, 1997
through September 30, 1998, and the projected period of January 1, 1999 through December 31, 1999;
WHEREAS, Time Warner Cable is permitted, pursuant to the Social Contract and Thirteenth
Order on Reconsideration, to estimate and recover anticipated inflation, external costs, and cable
system upgrade costs for the period of January 1, 1999 through December 31, 1999;
WHEREAS, on January 3, 1999, the County received a report from its consultant stating that
Time Warner's FCC 1240 BST rate calculations are in compliance with Federal Communications
Commission rate making rules, and that the requested maximum permitted Basic Service Tier Selected
rate was calculated in compliance with the FCC's rate making rules;
WHEREAS, FCC rules grant local franchise authorities an initial ninety (90) day review
period, measured from the date of receipt of said filing by the franchise authority, with which to review
the cable operator's FCC 1240 rate filing. If said ninety (90) -day review period expires before the rates
go into effect, the franchise authority retains review and refund authority past the initial ninety (90) day
review period as long as all inquiries from the cable operator regarding said review are responded to I in
writing within fifteen (15) days of said inquiry;
WHEREAS, Time Warner's rate filing includes cost estimates for the calendar year of 1999,
and said estimates shall require adjustment (true up), due to changes in the fourth quarter 1998
inflation factor which effected the 1999 BST MPR, in the cable operator's subsequent FCC 1240 rate
filing for 2000; and
WHEREAS, the County is certified with the FCC to regulate basic service tier rates provided
by Time Warner Cable in franchise NC -0256 and NC 0276.
IT IS A FINDING:
THAT Time Warner Cable did structure its 1998 true -up charges for the fourth 1997 through
third quarter 1998 on the FCC's published inflation factors (da980663, da981292).
THAT Time Warner Cable did base its BST .(Basic Tier Service) projected 1999 rate, in part,
upon an erroneous fourth quarter 1998 inflation factor FCC Cable Bureau (da981974);
THAT Time Warner Cable has by in large substantiated the other adjustments to its Basic
Service Tier rate based on past and estimated cost elements; and
THAT Time Warner has complied with FCC rate making rules, and its requested Maximum
Permitted BST rate is found to be reasonable and subject to any refund liability due to the fourth
quarter 1998 inflation factor at the time the FCC 1240 BST filing for 2000 is submitted.
IT IS THEREFORE ORDERED:
THAT Time Warner Cable's Basic Service Tier rate assessed subscribers within the County
shall not exceed the maximum permitted rate, subject to modifications in subsequent findings by the
cable operator or franchise authority for Basic Service Tier cable television programming during the
1999 calendar year;
THAT Time Warner may charge a Basic Service Tier rate below the approved Maximum
Permitted Rate, but not above it;
THAT the County retains its authority to issue refunds or rate roll backs after the initial ninety
(90) day review period with respect to the restructured rate set out in the FCC 1240 filing; and,
THAT Time Warner must keep a full and accurate account of all revenues and costs associated
with the aforementioned cable rate adjustment.
ISSUED BY ORDER OF THE BOARD OF COUNTY COMMISSIONERS
��YUa r ,
This the �day ofy, 1999.
ATTEST:
Send Report and Order via Certified U.S. Mail to:
Copy to:
Time Warner Cable
R.F. Sepe @ the City of Raleigh